Alternative Market Risk Management:

The Feasibility Study

By Joel Geddes, Jr.

Times have changed and AMRM facilities are now right sized to attract the largest number of prospective Middle Market entrants over the long history of Captive development.  Specifically, for Middle Market Businesses the barriers of capital, access, and premium thresholds to enter the ARM world of possibilities have been coming down.

So how does this affect the ARM Community, you ask?  There’s a lot more activity in the field of play and many more inexperienced candidates. Retail insurance agents/brokers as well as ARM Captive Consultants are generating an increasing number of prospect inquiries from individual business owners, accountants and especially estate and tax planning attorneys. As well, many prospective Captive Owners are hearing of Alternate Market Risk management opportunities from their fellow Peers, Business Owners and CEO/CFO friends.

So the big question for an AMRM candidate remains:   Is it feasible? ……Really?

The challenge for ARM practitioners in answering “Is it feasible?” is filtering out those that are overly eager and not eligible from those who are qualified candidates.  The fragrance of premium savings and a preferred tax environment can be quite alluring to candidates and new clients to the Industry, and equally attractive to the Industry.

Good News! The Feasibility Study is alive and well.

ARM feasibility studies have been provided for years and continue to be a critical step for the new candidates. Also, they are expected by our Regulators and the Internal Revenue Service.

So before practitioners are tempted by opportunity and prospective participants are overcome by the fragrance of a proposal, the entire feasibility of all viable ARM alternatives should be considered and a thorough written analysis provided, including valid actuarial, financial viability, pro formas, and a comparison of all the various levels and choices of risk assumption.  Potential participants should expect to receive an independent opinion including the candid assessment of the candidate’s appetite for risk assumption, any unique projected risk transfer (insurance) requirements, as well as the long term capitalization projections for the different alternatives unique to their individual situation.

My next blog  will cover what goes into the “Feasibility Study”.  It can be expansive in the scope and cost, or focused solely on one unique objective.  Stay tuned!